The Appointed Representatives (AR) regime has been around longer
than many of us might realize, having been introduced in 1986, and
so predating our beloved Financial Services and Markets Act 2000
(FSMA) by some years. No doubt, it seemed like a sensible
proposition: a cost-effective way to provide financial services for
those without the inclination or resources to seek authorization,
under the sheltering umbrella of a regulated principal. And firms
would, of course, take their responsibilities as principal very
seriously, given that they were, and are, liable for the acts and
omissions of their ARs (and were charging their ARs for the
privilege of being appointed).
Or not...
An increase in cases against principals for AR management failures did not lead to any marked improvement. As a result, when the FCA found "significant evidence of harm" caused primarily by principals failing to conduct adequate due diligence and properly control and oversee AR activities, it introduced new rules. The rules, which came into force on December 8, 2022, are designed to ensure that principals have strong and effective oversight of their ARs. They tackle both the principal–AR relationship and the principal's internal governance framework. This should have fixed things, and so it is disappointing that we still regularly see examples of principals falling short of the regulatory requirements.
HM Treasury recognized that rules alone were not going to solve this issue and so, against that backdrop, we now have its policy statement, published on August 11, 2025, on further changes to the regime. It is clear that the AR regime is seen as something which promotes competition, supports innovation and contributes to economic growth—something of a bingo full house for HM Treasury these days. But it is also clear that the recent FCA rule changes have not had enough impact, and that further action is needed. Two significant gaps are now under the spotlight, with plans to plug them.
Two gaps
The policy statement calls out two key gaps in the existing framework:
- At present, any authorized firm can appoint an AR. There are specific rules about resources and the ability to manage ARs but, currently, there is no assessment as to whether a firm should be permitted to do so. This is slightly odd, especially when specific permission is needed to enable a firm to sign off third-party financial promotions.
- The Financial Ombudsman Service (FOS) does not currently cover ARs directly. If an AR acts outside the scope of its contract with its principal, the FOS has to declare that it cannot deal with the complaint. The FOS's jurisdiction applies to authorised firms only, so if the principal has declined responsibility for the claim, the FOS is unable to make any assessment and determination where the complaint is against the AR only. This can leave retail customers facing a loss with no obvious or easy method of recovery.
Proposals
"Principal permission" gateway
The policy statement proposes requiring principal firms to hold a distinct permission to act as principal. The legislative change would amend section 39 FSMA, so that the AR exemption is only available where the principal holds this permission.
This is similar to the approach taken by the financial promotions gateway, where section 21 FSMA was amended so that authorized persons wanting to approve financial promotions would need to apply to the FCA for permission to do so. However, unlike the financial promotions gateway, and to avoid existing ARs finding themselves unable to trade while principals obtaining the new permission, the plan is for existing principals to be grandfathered.
Only new authorization applicants would need to request the permission as part of the Part 4A authorization process (in the policy statement, it is not clear whether or not a variation of permission will be required if a currently authorized firm wishes to appoint an AR for the first time after the new rules come in, but that would seem sensible).
While business and disruption drivers for the grandfathering approach are clear, it does mean that, potentially, an opportunity to address the issue of underperforming existing principals is being missed. There is also a risk that new ARs could be driven into the arms of poorly managed (but already-authorized) principals, if the effort of applying for the principal permission at authorization dissuades firms from doing so, or the incremental costs of obtaining the permission are passed on in higher fees charged by the principal.
The FCA will be able to limit, vary, or revoke the permission to reflect scale, business lines or risk profile—so existing principals won't be able to rest on their laurels indefinitely if they come onto the FCA's radar, either as a result of supervisory or thematic work.
Extension of FOS coverage
The policy statement proposes that the FOS will obtain compulsory jurisdiction to investigate complaints directly against an AR where it decides the principal bears no responsibility for the activity in dispute.
This won't dilute the principal's primary liability for matters that fall within the scope of the AR agreement—it merely prevents a "remedy dead end" for consumers when the principal cannot be held accountable. This should provide universal access to the FOS for all retail clients engaging with regulated activities, irrespective of whether those activities are undertaken by an authorized firm or an AR.
This has fairly significant implications for principals and ARs alike. Where a principal is not responsible for the AR's activities, the FOS will be able to direct redress against the AR itself. For principals, a principal must take all reasonable steps to ensure that its AR is only carrying on regulated activities to which the principal (or another principal in the case of multi-principal arrangements) has agreed, in accordance with the FCA rules. Failure to do so, for example, where an award is made directly against an AR for activities not covered by the principal, may call into question the effectiveness of the principal's governance and oversight of its AR. When is it all happening?
When is it all happening?
Not fast is probably the best answer. Both measures require changes to primary legislation and HM Treasury says that it will only be delivered once an "appropriate place in the legislative programme is found for this reform". There is no reference to these changes being urgent. Looking at how long it took to deliver the regulation of buy now, pay later, does 2028 sound overly optimistic?
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